Your Guide to Self-Assessment

Self-Assessment – an introduction

Self-employed taxpayers, partners, company directors and taxpayers with complex tax affairs are usually required to submit a Self-Assessment tax return. The Self-Assessment regime began with the tax year commencing 6 April 1996. The system requires taxpayers to ‘self-assess’ any income tax due. However, HMRC is entitled to enquire into the completeness and accuracy of any tax return.

Self-Assessment Tax Returns

Tax returns are issued annually following the end of the tax year on 5 April.

The 2023-24 tax year ended 5 April 2024. The main deadlines are:

• paper tax returns - midnight 31 October 2024
• online tax returns - midnight 31 January 2025
• final payment of any tax due - midnight 31 January 2025

Late filing penalties

There are automatic penalties for the late filing of tax returns. The main features of the penalty regime are as follows:

• From day one, taxpayers will be charged a £100 penalty even if they have no tax to pay or have paid any tax due on time.
• From 3 months late: taxpayers will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
• From 6 months late: taxpayers will be charged additional penalties which are the greater of 5% of tax due or £300
• If you are over 12 months late, you will be subject to additional penalties based on the greater of 5% of tax due or £300. In serious cases, this penalty may be increased up to 100% of the tax due.

Paying the tax you owe

If you submit your own tax return, HMRC will calculate how much tax is owed. You can also employ an accountant to do this for you.

If you are an employee or receive a pension, you can ask the taxman to collect any tax due of up to £3,000 through an adjustment to your tax code. This will mean you do not need to make a direct payment of the tax to HMRC. Instead, it will be paid through deductions from your salary or pension. In this case, the deadline for submitting a tax return is 30 December, following the end of the tax year.

Normal payment dates for Income Tax

If you are self-employed or have significant rental or other unearned income, you will probably be required to pay your tax in three instalments each year. This will often only be the case when you are in your second year of business.

The first two payments will both be the same. They are due on:

• 31 January during the tax year, e.g. for 2024-25, the first payment on account is due on 31 January 2025.
• 31 July following the tax year, e.g. for 2024-25, the second payment on account is due on 31 July 2025.

These payments on account are based on the previous year’s net income tax liability (e.g., income tax due with less tax deducted at source). The actual calculation will be prepared by your accountant or by HMRC. In any case, they will send you a detailed statement of account setting out the amounts due.

You have the right to request a reduction in your payments on account if you believe that the current year’s net Income Tax liability will be less than the previous year. However, interest may be charged if the figures given to HMRC are incorrect.

No payments on account are required where your net Income Tax liability for the previous tax year is less than £1,000 or if more than 80% of that year’s tax liability was collected at source.

The third (or only) tax payment will be due on 31 January following the end of the tax year, e.g. for the 2023-24 tax year, a final payment is due on 31 January 2025. This is the same date as you will have to pay any Capital Gains Tax (CGT) due for 2023-24, and you will also have to make your first payment on account for 2024-25 at the same time. Note that a payment on account of CGT needs to be made within 60 days of the completion of any transaction relating to the chargeable disposal of residential property.

Surcharges and interest

There is an automatic 5% surcharge on tax outstanding at 28 February following the end of the tax year e.g. payments outstanding at 28 February 2025 for the 2023-24 tax year will be subject to a surcharge with a further 5% surcharge on any tax still outstanding on 31 July 2025 and a further 5% after one year.

Interest will also be due on late taxes paid. HMRC will pay interest on tax refunds that are paid late.

Changes to tax returns

HMRC and taxpayers have the right to amend or correct tax returns following submission. Taxpayers have one year from the filing date to amend their tax return, while HMRC has nine months from the date the return was received to correct obvious mistakes or errors.

High-Income Child Benefit Charge

From 6^th April 2024, the High Income Child Benefit Charge applies to taxpayers whose income exceeds £60,000 (£50,000 for 2023/24) in a tax year and who receive child benefit. Taxpayers affected by the change have the choice to keep receiving child benefit and pay the tax charge through Self-Assessment or elect to stop receiving child benefit and not pay the new charge.

It is important that taxpayers who continue to receive child benefit (and earn over the relevant limits) ensure that they are registered for Self-Assessment to avoid receiving penalties.

HMRC enquiries

HMRC can make enquiries to check that a return has been correctly completed within 12 months following the date the return was due or 12 months following the date the return was submitted, if later. No reason needs to be given for an enquiry, nor does it mean that the return is incorrect.

If HMRC does not make an enquiry, the return will not be subsequently examined except where the taxpayer makes an error or mistake claim or HMRC later discovers that something was wrong with the tax return. There are strict rules as to when HMRC can do this, although taxpayers have less protection in this regard than used to be the case.

Records

All tax return records should be held for one year. Records relating to trading or rental income should be held for a total of five years and ten months.

Making Tax Digital

The introduction of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) will fundamentally change the way businesses, the self-employed, and landlords interact with HMRC. MTD for ITSA has been postponed several times and is now expected to start on 6 April 2026. The rules will initially apply to businesses, self-employed individuals, and landlords with an income of over £50,000 annually.

From 6 April 2027, MTD for ITSA will be extended to those with income between £30,000 and £50,000. A new system of penalties for late filing and late payment of tax for ITSA will also apply.

At present, there are no concrete plans to extend ITSA to smaller businesses with income below £30,000 or to Corporation Tax.

Page updated on 13/05/2024.